More real power has been given to the banking department in the provisions of the law. Through investigation, authorization certificates, and regular uniform reports, the superintendent of banks has more direct control over the banks than ever before. Besides the extension of the supervisory powers, the penal provisions of the act have been strengthened and made more exacting.
1. Features of the act relating to banks of deposit and discount and trust companies. The reserves required against deposits were reduced substantially, and made nearly uniform with those required for national banks. The following table gives the percentage of reserve required and the percentage of reserve on hand which the new law specifies for these banks.
| Banks of deposit and discount | Trust companies | |||
| Per cent. of deposits | Per cent. of deposits | |||
| Population | Required reserve | Reserve on hand | Required reserve | Reserve on hand |
| 2,000,000 or over | 18 | 12 | 15 | 10 |
| 1,000,000-2,000,000 | 15 | 10 | 13 | 8 |
| Elsewhere in the state | 12 | 4 | 10 | 4 or 3 |
The reserve requirements are made still more definite by the fact that the law compels the banks to keep one-half at least of the reserve on hand in "gold, gold bullion, gold coin, United States gold certificates, or United States notes: and the remainder in any form of currency authorized by the law of the United States other than federal reserve notes."
Among the powers granted to these banks is the power "to accept for payment at a future date, drafts drawn upon its customers and to issue letters of credit authorizing the holders thereof to draw drafts upon it or its correspondents at sight or on time not exceeding one year." This clause gives a much wider power to the state banks in the important matter of acceptances than its counterpart in the Federal Reserve Act. In the one case both domestic and foreign acceptances may be made and handled without stipulation as to aggregate amount and bearing maturities of one year or less, while in the other case the acceptances are limited to those arising out of the importation or exportation of goods with maturities not exceeding six months. Seemingly, the state banks have the advantage, and to this extent the state law is superior to the federal act.
One other important forward step was taken in relation to this group of banks. They are given the privilege of establishing branches outside the State of New York, either in the United States or in foreign countries. This privilege is qualified, however, by the provision that no bank can establish such branches unless it has a combined capital and surplus of $1,000,000 or over and the written approval of the superintendent of banks. Although the old law permitted trust companies to establish branches in the place where they were incorporated, the practical effect was to limit branch banking to the city of New York. In this particular also the state banks have the advantage over the banks in the federal reserve system which are allowed to establish branches only in foreign countries.
2. Features relating to private banks and bankers. The regulation of private banks and bankers is an entirely new departure in the law of this State. In the past the banking department had no authority to supervise that relatively large number of private bankers who receive deposits in small amounts from the wage-earning classes while conducting in connection therewith a mercantile or some other kind of business.
Mercantile firms like the Siegel Company, by paying a higher rate of interest upon deposits than savings banks, were able to obtain the savings of many small depositors. This money was invested in the business and secured only by the capital stock of the mercantile establishments. In case the firm failed there was no security back of these deposits but these same shares of stock, and so depositors were fortunate if they received in settlement even 40 per cent. of their claims. Such firms were not doing a legitimate banking business inasmuch as they did not keep their assets in liquid form and carried no reserve against deposits.
The new act corrects this situation by giving the banking department authority to conduct independent investigations into any violation of the banking law by a corporation or individual. In the future a corporation which is in any way engaged in the business of banking cannot hide under the wing of the general corporation law when the banking department sees fit to make an investigation of its affairs.